Abstract The neocortex generates a representation of the outside world by combining information from different sensory modalities and integrating this with internally generated information, such as memories and expectations. Furthermore, cortical processing and perception are contextually adjusted by the actions of neuromodulators released in the neocortex during specific behavioral states such as arousal and attention. In most sensory systems, sensory information enters the cortex through projections from the sensory thalamus that primarily target layer 4 (L4). Thus, the thalamocortical response transformations occurring in L4 start the cortical processing of sensory information that results in a sensory percept that is optimized for the behavioral needs of the animal. However, we still have an incomplete understanding of the transformations of sensory input that take place in L4 during behavior and the circuits mediating these transformations. This information is critical for a mechanistic understanding of sensory processing, which is necessary for interventions to treat diseases resulting from altered sensory perception. Cortical processing is mediated by dynamic microcircuits composed of excitatory or principal neurons (PNs), which transmit signals to other areas and a diverse array of inhibitory GABAergic interneurons (INs), which sculpt cortical circuits and are critical for signal processing. However, due to their diversity and low representation, recording IN activity during behavior and understanding their function has been challenging. This project uses an innovative approach (Channelrhodopsin-assisted patching), that facilitates the efficient targeted in vivo recording of specific cell types at any cortical depth, to advance our understanding of L4 circuits. The studies are focused on the two main IN populations in L4 of somatosensory cortex, the fast-spiking parvalbumin--expressing basket cells (PV INs) and the somatostatin-expressing INs (SST INs), which together account for 80-90% of L4 INs. Experiments in slices have led to the hypothesis that the function of L4 SST INs, which are major targets of cholinergic influence, is to regulate PV IN activity. L4 PV INs produce feedforward inhibition (FFI) of thalamocortical inputs and thereby control the feature selectivity of L4 PNs. This application will test the hypotheses that L4 SST INs regulate PV IN-mediated inhibition of PNs, and that the disinhibition of PNs produced in L4 as a result of the cholinergic activation of SST cells contributes to the mechanisms by which ACh enhances sensory detection. To investigate the disinhibition hypothesis, in Aim 1 we will study the changes in activity of L4 PV INs and PNs during behavioral states in which SST INs normally increase their activity and the effects of manipulating SST IN activity. In Aim 2, we will use a sensory detection task that depends on cholinergic modulation to investigate the role of L4 SST IN activity on touch responses, and the contribution of the muscarinic activation of SST INs to the cholinergic enhancement of sensory signals and behavioral performance.